Analyzing Pershing Square's positions in 3Q 2013

Why did Ackman reduce his stake in General Growth Properties?

By Samantha Nielson
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Dec 20, 2013 4:00 pm EST

Pershing Square Capital Management is a New York–based activist hedge fund founded and run by Bill Ackman. Ackman started the firm in 2004 with $54 million from his personal funds and from his former business partner, Leucadia National. News reports in October claimed that the fund has seen its assets under management decline by $1.2 billion from $12.4 billion in March, mainly due to setbacks in investments made in J.C. Penney Co. (JCP) and a large bet against Herbalife Ltd. (HLF).

In this six part series, we’ll go through some of the main positions Pershing Square Capital Management LP traded this past quarter.

The fund bought no new positions in 3Q 2013. It added to its positions in Air Products & Chemicals (APD), and reduced its positions in General Growth Properties, (GGP) Canadian Pacific Railway (CP), and Procter & Gamble (PG). It sold its positions in J.C. Penney (JCP).

Abbreviated financial summaries and metrics for these securities are included below. Detailed analysis and recommendations require a subscription (more information at the bottom of the article).

In 3Q 2013, Pershing Square Capital reduced its General Growth Properties (GGP) position to 6.70% of the U.S. long portfolio. Ackman had made the investment in 2008, when General Growth Properties was coming out of bankruptcy. After a battle last year with another major shareholder, Brookfield Asset Management, over a potential sale to GGP competitor Simon Property Group, Ackman sold some of his shares and warrants to Brookfield earlier in 2013.

In 3Q 2013, GGP reported net income of $27.5 million, or $0.02 per diluted share, compared to a net loss of $208 million, or $0.23 per diluted share, in the prior year. EBITDA increased 4.5%, to $1,471 million from $1,407 million in the prior year. The company had revenue of $620.70 million for the quarter, slightly down from $622 million in the same quarter last year. The company said it’s focused on the core sources of long-term growth, increasing permanent occupancy, achieving positive rental spreads, and creating value from its development initiatives. Growing permanent occupancy and reletting space at higher rents are the main sources of growth for next year as the portfolio reaches stabilized occupancy.

During the quarter, it acquired an interest in two urban retail properties in San Francisco. The properties are an Apple flagship store at One Stockton Street and a Bulgari flagship store at One Union Square. It also closed on the sale of its ownership interests in Aliansce Shopping Centers S.A.

The company has redevelopment activities under construction or in the pipeline totaling approximately $2 billion ($1.3 billion under construction or completed) of capital investment, encompassing 54 properties, including Ala Moana plus a ground-up mall development in Fairfield County, Connecticut.

The company acquired 28.3 million of its common shares during the third quarter of 2013. The average share price was $20.00 for total consideration of $567 million. It declared a quarterly dividend of $0.3984 per share payable on January 2, 2014. Analysts are currently bullish about the stock on the back of strong Net Operating Income (NOI) growth and a strong development pipeline.

General Growth Properties is a fully integrated, self-managed, and self-administered real estate investment trust focused exclusively on owning, managing, leasing, and redeveloping high-quality regional malls throughout the United States. GGP’s portfolio comprises 123 regional malls in the United States, totaling approximately 128 million square feet. GGP is headquartered in Chicago, Illinois. It’s the second largest retail property REIT in the U.S.

Pershing Square Capital uses fundamental analysis with a value orientation employing extensive research and thorough due diligence in its decision-making process. It uses a unique mix of value investing and an activist approach in sifting through and identifying investments.

Founder Bill Ackman has a Bachelor of Arts degree magna cum laude from Harvard College in 1988 and an MBA from Harvard Business School in 1992.